Israeli Prime Minister Benjamin Netanyahu gives a lecture at the Catham House think tank in London on November 3, 2017Jonathan Sacderoti/i24NEWS

In London, the Israeli PM also argued that imposing democracy on Arab states 'doesn't work'

Israeli Prime Minister Benjamin Netanyahu said on Friday in a wide-ranging foreign policy lecture that his country's warming ties with moderate Arab nations signals hope for the moribund Middle East peace process, but added that Palestinians' refusal to recognize Israel a Jewish state was holding it back.

Speaking at the prestigious Chatham House think tank in London a day after marking the centennial anniversary of the Balfour Declaration with British Prime Minister Theresa May, Netanyahu said that the document's call to establish "a national home for the Jewish people" has been repeatedly rejected by the Palestinians.

"The real reason the [Israel-Palestinian] conflict persists is [Palestinians'] persistent refusal to recognize a Jewish state in any boundary," Netanyahu said.

"How can you asked to have a Palestinian national state without recognizing a Jewish national state [in return]?"

Netanyahu also said that in order to achieve a peace deal, the world might have to rethink its view of sovereignty.

"A Palestinian state won't have military sovereignty," Netanyahu suggested, arguing that Greece surrendered its financial sovereignty in exchange for a bailout from the European Union during its economic crisis.

Israel has demanded that a future Palestinian state be demilitarized, and that any unified Palestinian government require the Gaza-based Hamas militant faction to disarm.

"The Palestinians ought to have all powers to govern themselves, but none of the powers to threaten us," Netanyahu said, calling for Israel to maintain overriding security control in Palestinian territory.

Netanyahu said that while attitudes toward Israel remain hardened among the Palestinians, this is not the case among the wider Arab world.

"There is movement in Arab world," Netanyahu said. "Attitudes toward Israel are still hardened in our immediate vicinity, but as you move toward [the] Arab Gulf you'll find attitudes are mellowing considerably," he said, alluding countries like Saudi Arabia, which shares regional interests with Israel over mutual foes like Iran.

Still, he said, forging alliances with those nations "won't substitute a formal peace agreement with the Palestinians."

Democracy doesn't work

The Israeli prime minister said that an important battle is currently underway in the Middle East between what her termed "modernists" and "early medievalists" or "the barbarians".

Extremist Shi'ite and Sunni groups in the region are competing for dominance, Netanyahu said, emerging from the ashes of fallen regimes. As a result of these competing cultural forces, Netanyahu says democratization of the Middle East is a recipe for disaster.

"You cannot superimpose a Western structure [in the Middle East]. It doesn't work," he said, leaving a choice between "rampant theological, dictatorial theocracies based on Islam" or "more moderate, secular authoritarian regimes."

In early 2011 a wave of anti-government protests, known as the Arab Spring, swept across several countries in the Middle East. However in almost all cases they failed to unseat longstanding oppressive governments.

Amid all the infighting in the Middle East, Netanyahu says, Iran has emerged as a potent force both by direct conquest, but more by proxies such as Hezbollah in Lebanon and Syria, or the Huthi rebels in Yemen.

"Moderate Arab regimes understand that Israel is not their enemy, but indispensable ally, and this attitude is percolating into society," Netanyahu said.

Iran 'devouring' Mideast

On the topic of Iran, Netanyahu reiterated his "fix it or nix it" position with regards to the 2015 nuclear accord signed with world powers.

"By far the greatest danger to the world is a militant Islamic regime meeting nuclear weapons," Netanyahu said.

Netanyahu said that the current iteration of the accord, which does not permit inspections of conventional military sites and which lifts restrictions on uranium enrichment after a decade, offers Iran a "kosher seal of international approval" to "continue unfettered toward an arsenal of nuclear bombs."

US President Donald Trump recently booted the decision of whether to keep his administration in the 2015 Iran nuclear deal, however the other signatories, including Britain, have said they are committed to the agreement.

Israel has also been pressing the international community, particularly Tehran ally Russia, not to allow Iran to entrench militarily in Syria as the government there continues to make gains on the battlefield.

"Iran is devouring one nation after the other," Netanyahu said. "It is doing so either by direct conquest or by using proxy. They took over Lebanon, Yemen... they try to do the same thing with Iraq, in Syria.

"The good news is that the other guys are getting together with Israel as never before. It is something that I would have never expected in my lifetime."

He said Israel was working "very hard" to establish an effective alliance with "the modern Sunni states" to condemn and counter Iranian aggression.

"I think that actually has a great promise of peace" for the region, he said.